Physician Financial Success Podcast

Josh Mettle: Hello and welcome to the Physician Financial Success Podcast. My name is Josh Mettle, and this is the podcast dedicated to advising physicians how to avoid financial landmines. Today, we’ll be talking with Paul Larson, CEO of Larson Financial Group. Larson Financial Group is one of the nation’s largest financial advisory firms specializing in doctors and serves over 4,500 physicians and dentists nationwide. Paul, welcome to the show. How are you doing this morning?

Paul Larson: Good, great, Josh. Thanks for having me.

JM: My pleasure. I appreciate you spending some time with us. You know to be honest, I’m fascinated with what you’ve built. I’d love if you’ll just start with maybe a little background and history of Larson Financial Group and then how you got started down the path of advising physicians and dentists. We can start there.

PL: Of course, yes. I actually began working with physicians, not necessarily being an being a client base, it kind of fell into my lap. About 2003 was the year that I was introduced to the first doctor that I ever met in regards to going through his finances. It was kind of an interesting situation. At the time, I was working with engineers, so I was pretty acclimated to understanding their way of life and how finances, you know, impacted their jobs and careers. Being a doctor was a completely different paradigm for me, so I was introduced to an older surgeon. He’s been in practice for roughly 15 years, and he came in and effectively just told me, “I’m pretty tired.” He said, “I’m kind of sick and tired of taking calls. I’d like to find a way to get out of medicine.”

So, I just kind of walked him through some questions and I got a chance to know him and his wife. A really neat guy, but what I realized quickly was he was nowhere close to be on stage to get to their goals and expectations that he had. He was 47 when I met him and wanted to be done by 55 and finished up with co-pay, taking calls, and all of that stuff that went along with the frustrations in his career. That was a real eye-opener for me, and that experience kind of led me to look into shifting the focus of my practice.

I think the things that contributed to that were really the fact that this physician/surgeon had a number of different advisors that were helping him. He had an accountant and he had a CPA, you know different people doing different roles. The attorney was doing something separate, and then, the investment guy wasn’t talking to the CPA. There was a lot of consternation around his finances and his goals, and so, I look at that and felt like there was really nobody that was advocating for the doctor. It left this particular physician in the place where he was supposed to quarterback all these different people and instead of them guiding him through the course of life and giving him options to make decisions, he would be looked at as he wasn’t supposed to be that person to make those decisions and connect all the different dots. That was really the impetus for me to again shift my practice.

Since then, I’ve almost exclusively worked with doctors, and that’s again been for a little more than 10 years now. It’s been a real joy, but today, our firm is an independent firm, and we are headquartered out of St. Louis, Missouri. We’ve got roughly 36 offices now scattered around the country. It’s grown like wildfire. We have about 6,500 doctors that we service right now, and we bring on about 30 to 50 a month. Definitely a need that has not been filled by other entities and companies, so we’ve really enjoyed stepping into that space.

JM: Yeah, you know, I mentioned earlier that I found my way to you through your financial advisors, and I found my way to your financial advisors through the physicians that I was serving, so I think you guys are doing a great job. It’s been a great history. I appreciate you sharing it, and before I go deeper down the financial path, which I want to get into, I want to just ask you a couple of questions about Larson Financial Foundation. I watched the YouTube video about that and some opening of some wells, and I love what you’re doing there. Can you maybe just share with us the mission of the foundation and how that’s going?

PL: Yeah, of course. You know, we really believe that physicians go through cycles in their lifetimes, and then their careers. They move through the path of obviously going through a lot of education and being overworked and really underpaid for many years. They get into their 30s and then hey launch into their practices. Now, there is kind of this idea that, you know, they’re looking down the tunnel if you will, there’s like a light that’s out there, and that light typically for a doctor is the delayed gratification that kicks in as the see the income showing up. But what they quickly realize is they’ve racked up a significant amount of debt and so what they thought to be a gratifying experience in going out making money and serving patients tends to not get them to their fulfillment that they’re hoping for.

JM: Yeah.

PL: So, they work really hard. They save money. They get their kids through school and start aiming at retirement, but we really believe that there is more to life than that. At Larson Financial Group, we feel like we have been blessed and we’ve been given many opportunities, and one of those opportunities is to peek into the lives of physicians. They come to us before really they go to anybody else about all kinds of things leaving their job, a death in the family, you know frustrations with partners at work whatever that might look like, and really our and what we feel like we want to instill into their life is understand what they’re passionate about. If they’re looking at us and asking you know, “What is it that motivates you?”

We feel like leading by example and we do that by way of, you know, giving financially and other resources through our foundation. We feel like we’re leading in that way and showing physicians that it really is truly better to give than to receive. We feel like there is a lot of joy that’s found there. We launched the foundation a couple of years ago and take some of the profits from Larson Financial Holdings, which owns all of our entities, and we route that over to our foundation. Specifically what we look to do is effectively reproduce what we’re doing in the United States where we started a company that employs people, provides a valuable service, and teaches people to fish instead of giving them the fish.

JM: Yeah.

PL: All too often, charities are handing money out and it doesn’t empower people to do and to sustain themselves. It builds entitlement and it just fosters a system that doesn’t work long term. So, we believe that our aim is going to be starting businesses in places that are the most impoverished places in the world. You know, some of those places are all around the world, but a lot of those are in the communities where we live. That’s what we’re doing, and you know our aim is to bring along physicians with us. We believe that the ones who’ve gotten involved with that have just been – it’s been really fulfilling for them.

JM: Yeah, it was a beautiful – I love the YouTube video that you did on that, and it was touching to see that the wells are open and the school is opening. It’s just very cool, so kudos for that. So, let’s talk a little bit about the different entities under the Larson umbrella there, as you alluded to, and what type of typical services a physician or dentist client might receive with your firm?

PL: Yeah, you know, Josh, it started out as a financial planning firm in 2006, and what we recognized very quickly is that doctors needed a one stop shop and a place where they could come and they could get advice.

JM: Yeah.

PL: That was unencumbered by you know conflict of interest that was preventing them from getting the full information that they needed.

JM: Right.

PL: You know, they, a lot of times, just don’t know where to go and who to trust. What we recognized after launching the financial planning firm. And really the focus there was to become advocates and consultants, much like a sport agent would be for an athlete.

JM: Right.

PL: We did the vetting for everything on these doctors. We would help them buy their houses. We would help them you know, negotiate their contracts. We assist with their taxes and really giving them advice about everything. We developed that on a chassis that was independent, so that we are not biased and leaning towards a specific company to use. All too often, we found doctors who would go into a financial advisor and they would ask for something like, “Should I buy a car? Should I lease a car?” They would walk out with you know an investment product or an insurance policy or something of that nature, and they really weren’t getting their needs fully meet. And so, that’s where we started.

Where we have grown to over the years is adding about eight different entities that are affiliated companies. So, we now have a car leasing company that helps physicians purchase cars that are the caliber that they want. We just don’t like to see physicians spending significant amounts of dollars to buy cars, driving them off the lot, and watching it depreciate. So, we’ve developed a leasing company that gets cars that are about a year old and let somebody else take the bath on those.

JM: That’s great.

PL: That’s an example. We have a real estate company that’s a full comprehensive brokerage working in commercial and residential. We have teams of people that go out and take all of the minutia of owning a house off the physician’s plate, recognizing that our doctors are a lot like our advisors. They’re working all the time, you know, on the road, and the last thing we want to do is come home and have to deal with cutting the grass or a doorknob that’s hanging off or something silly like that. You know we just established, one of our more recent business lines is to be a estate concierge manager, and so, we have a monthly subscription fee that basically takes care of all that stuff and then so you have unlimited access, if you need somebody else to handle that for you.

JM: It’s great.

PL: So, there’s a lot of things, you know, of that nature, we have a tax firm, a law firm and the list kind of goes on so it’s quite a few different services that are aimed again, to be really a one stop shop for physicians.

JM: Yeah, and I get that, you know the integration of financial planning and how that works with legal planning and how that works with tax planning. I mean it’s really is – you can’t do a great job with that unless there’s a holistic approach.

PL: That’s right.

JM: I can appreciate that. Okay, so let’s get into that kind of the investment side if we could for a minute. So, let’s talk just a little bit about DFA funds and let’s just kind of walk through what those are and maybe why it is that you advise those for your clients?

PL: Yeah, you know, I think where you’re settle on a specific product like DFA, you have to walk up the trail there a little bit and ask yourself, “What are you trying to accomplish when you invest money and what philosophy are you going to go with?” I would tell you that most investment managers out there are going to tell that they are able to select the specific mutual fund and stock that is going to be outperforming what a physician would be able to do on their own, or they might, as suggest that they have some sort of information that’s going to allow them to forecast the future. They wouldn’t say it like that, they’re just going to say you know, “We are just going to sit this one out in cash, and you know wait until the market rebounds and then whatever.” And so, I heard a lot of that advice.

Actually the DFA conversation rolled all the way back for me when I was finishing a finance degree, coming out after Northwestern and asked to do a thesis on Efficient Market Hypothesis, and you know what that study effectively was is a monkey throwing darts at the wall picking stocks comparing it to you know a stockbroker on Wall Street, you know out of University of Chicago stuff. Fascinating research.

JM: Yeah.

PL: I tell you what, I was getting my Series then, I was getting my stockbroker’s exam in college. I really had an identity crisis. I looked at the future here and gone on, “What am I going to offer, you know? If a monkey can do what I’m supposed to be doing, what value do I have, you know.” And so, that was an eye opener, you know. I was in my 20s. This was a game changer for me, for sure.

JM: Right.

PL: But you know, it was fascinating because after I did that study, my professor in his wisdom in many years of guiding people said, “You need to go check out a couple of other studies now.” He directed me towards one done by Dalbar. This was a really interesting study because instead of you know looking at and trying to pick stocks that can add value to the investor, what they did is they said, “We want to know can people who invest their money outperform what an index would do?” Because inevitably what happened when that data came out from this University of Chicago study, companies like Vanguard pops up onto the scene and all these do-it-yourselfers, you know, started coming out of the woodwork.

Physicians are notorious for having a mindset of, “If I can go to med school, and cut into people’s brains and do all these crazy, complex surgeries, for sure, I can figure out this all this investing stuff.” And so, what they’ll end up doing is a lot of times, they manage their own money. You know, I’ve seen people that are not there, but I’ll tell you one thing, and this isn’t picking on doctors. This is human nature. Emotions play a huge factor in money management

JM: Yeah.

PL: And greed and fear are two powerful ones that often lead people to make decisions that are counterproductive, so this study at Dalbar was really interesting to me because what they wanted to know is how did the average investor fare against just putting them against the likes of S&P 500 and a Vanguard fund. What I found and that research was, the individual investor over blocks of ten-year periods was getting about a third of the returns of the S&P. So, if the S&P did about 12.5 in the period that I first looked at it, the investor was making 4.3.

JM: Yeah.

PL: You know, it blew my mind, and so that was really the guide, you know for us to figure out what are we going to hang our hat on when it comes to investment advice. Specifically, we focus our investment portfolios in roughly the half billion that we manage we focus on low taxes. We focus on low fees, which is where DFA comes in, and we focus on really making sure that we are allocating things correctly for the physician and making sure that the amount of risks they take is equivalent to the amount that they want to take and getting the returns that they should be getting.

JM: I’ve heard DFA funds described as super funds where they’ve, you know, really kind of sliced and diced a basket of investments all over the place, and therefore mitigating risk and not necessarily shooting for a home run but making sure that you got consistent returns over the long run and you’re not going to strike out either. Is that-

PL: Right.

JM: kind of how you would describe that in detail those-

PL: Yeah. Yeah, I would say we get a lot of questions about what is DFA, you know, what’s in the magic box.

JM: Right.

PL: And there really isn’t any magic there. It’s actually focusing on the fundamentals. The guys who started that company are the guys who did the study out of the University of Chicago, they’re one and the same. And so, where you might have a Vanguard accessible to you as an individual investor this I would say if you’re not going to use an advisor that would access the DFA Funds, I would say that Vanguard is a great second choice. But, in my opinion, DFA really takes you to a whole new level, so the super fund terminology I think is appropriate, but how do they get to superior performance above Vanguard, even when net up the fees, is because of the way that they design the portfolios.

What they recognize over time is that there are certain asset classes that outperform other asset classes. Specifically small companies outdo large companies on every time block you want to look at when you’re looking at 10-year chunks of time, and so, that will happen. You also notice that value stocks outperform growth, and so, ironically most of investors go the other way. They go large companies. They use U.S. stocks, and they use growth companies. It’s almost as if they’re going the wrong direction, and they take similar amounts of risks when you measure standard deviations or betas, and you look at that, and the question is why are we putting money into the wrong asset classes and going so far in the wrong direction?

JM: Right.

PL: And a lot of that is a function of how people invest. The wire houses, the Morgan Stanleys, you know all these different, Merrill Lynch, these different places. They’re going to tout that you can structure your investment portfolio by picking the right stocks and typically, those are the United States, but we just disagree with that philosophy fundamentally. We believe that the data is just proving itself over time, but certainly isn’t the information that most investment managers like to have out there on the street.

JM: Yeah. I get it. Well, I love it, and I think they are great funds from the research that I’ve done. So, Paul, let’s talk about our major demographics. Most of the clients that we are able to help are younger clients, either residents, fellows, or newly attending physicians. I think that’s probably the basket of our listeners. So, can I get your take, your financial advice as to what our younger clients should be focused on, especially early in their professional careers?

PL: Yeah. I would say that you know a large chunk of our physician base is also just getting started. You know there’s a whole lot of things that are happening there, and it happens all in such a short window of time.

JM: Yeah.

PL: You look at a 32 year old that’s making $40,000 a year or $50,000 a year and working so much that they don’t really have any time to think about anything outside of doing whatever their attending is telling them to do and eating ramen noodles in between cases.

JM: Right.

PL: And so, you know, you look at that lifestyle to now I’m an attending physician within a couple of months, you go from $40,000 or $50,000 to you know a quarter of a million dollars.

JM: Right.

PL: I mean that’s the contract that doctors I’ve got guys that have gone on to finding first-year deals of $900,000 to $1 million a year. It’s ridiculous, and so, it’s like winning the lottery, and it’s really not any different. You know you go out there, you look at somebody who wins the lottery, who never has had the experience of having all of the issues that money creates. It can be detrimental to their overall health financially, physically and in every other way. I think were we like to focus our time and on doctors particularly is helping them talk through some of these things.

I mean even when you get married, you both approach things differently. You grew up with different expectations about how to handle money and you compound that with lots of it coming in the door, I’m just telling you, it’s a recipe for disaster. And that’s why, you know, finances really become one of the biggest point of contention in marriages. You know, I don’t think that has to be that way, but I would say that there are some big factors that you have to take into account as a young doctor.

Specifically, you’ve got to think through how are you going to handle debt? Are you going to pay it off aggressively? Are you going to keep the debt? You know, do you sleep well at night if you keep the debt? I mean there are just lots of questions there, and so, you’re going to want to come up with a strategy for that. You know another one is what happens if you get sued? For the doctors out there who have been named in a lawsuit where they’re just scrubbed the back of a room or whatever, they didn’t do anything. It is a very stressful experience, and so, our job is to make sure that these physicians have really a guardian helping them protect everything that they’ve worked so hard to build.

You can launch into practice and start saving a bunch of money and get one lawsuit, and it could be gone in an instant, and so, that’s the last thing you want to do is you plan it after the fact. Asset protection becomes a key issue, and so, that’s another thing we look at is, you get questions about houses a lot, you know what do I do there, practice partnerships, going to do a hospital-based employee versus starting a private practice.

I get all kinds of questions about that. Much of our discussion with younger doctors is focused around getting to know them, understanding their personality, and trying to give them the pros and cons of all these, you know different decisions that they have to make and giving them the choices, and then, standing by ready to help them implement them to the best of our ability.

JM: Yeah, you know I have always focused especially with younger physician clients is, you know, even in your residency, even in your fellowship, even when there’s not a lot of cash coming through the front door, these are really the times to start focusing on the practice of saving, even if it’s a very, very minute amount. These are the times to start at least starting the education on finances, or at least start the planning with somebody who can advise you because you mentioned that life comes at you fast, and you know, you move from $50,000 to $250,000.

Then, on top of that, on top of the stresses that come with that, you’ve also got expanding families and relocating across the country. I mean it is just a fast and furious time for a lot of these folks. If you don’t I think, have a plan, I think if you don’t start thinking about it before you get to that place, then sometimes it never happens. Sometimes you get 10 years down the road and go, “Woah! What just happened? And we don’t really have a plan. So now what?” So, you know-

PL: I couldn’t agree more. Yeah. I mean, I think there’s a common fallacy out there that money solves all problems. I would really change that statement. I would say, money can make life a little easier, but in respect, you have more options, but it certainly makes it more complex, and you got to make decisions now that you never had thought about before. It’s really that a lot of this is driven by character and habit, and those sorts of things that carry with you from training into practice. It’s amazing to me, but I’ve seen people who’ve had credit card debt and really things are so upside down financially speaking when they’re in training, and then, they go out into practice. They get upwards of making $2 million a year as a physician, and they’re still in the exact same situation.

I know of a doctor not too long ago who was making millions a year netting, after all his expenses. Yet, he still has hundreds of thousands of dollars of unsecured debt and his net worth isn’t very high at all like a couple of hundred thousand. I look at this, and I go, “How in the world can you make so much money and yet be so far leveraged and really be no further to your goal?” I mean if you looked at our top clients, the majority of them are making incomes that are fairly modest for a doctor, but yet, their net worth is off the charts. I think that goes along the lines of you know, just overall in America, you see the people who have the highest percentage of you know savings when they get to retirement, and it’s not doctors. It’s actually teachers. The people that you think make the most in retirement years with their net worth, which would be attorneys or doctors, but they actually have the lowest quartile. It’s a function of, again, having very good habits from a savings perspective, I think.

JM: Yeah, well that’s the millionaire next door, right? I mean I’m sure a lot of us have read it. If you haven’t you should read, but you know, it’s a book that goes through and actually documents-

PL: Right.

JM: The millionaire after millionaire next door is not the person with the mega six-figure or seven-figure salary.

PL: Right.

JM: It’s the person who lives way below their means.

PL: Totally. It’s funny. We kind of think a joke in our office is that when we see the really expensive car pull in front of our office with a physician in it, we often know that doesn’t correlate with the amount of assets and net worth that they have. But it’s when they show up and even if you know that it’s a doctor and they’re driving a beat-up old Toyota. They walk in and then they very humbly say, “Well, I’ve saved a little bit of money.” And then, they drop their statement in front of the table, and it’s like $10 million.

You’re like, “Wow! That’s a lot of little bit, you know. You got quite a bit, you know.” It’s ironic, you know. I think it goes to our culture. You know, I’m not suggesting that you have to save every dime. I mean you got to live and enjoy life, but certainly I think there are some parallels that from my book, is what I see with physicians for sure.

JM: Paul, thanks again. It was a pleasure, and we definitely look forward to connecting with you again soon.